Good morning, ladies and gentlemen, and welcome to the Agree Realty Corporation’s Fourth Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the formal presentation, the conference will be opened for questions.

As a reminder, this conference is being recorded. It is now my pleasure to introduce Joey Agree, President and Chief Executive Officer of Agree Realty Corporation. Mr. Agree, you may begin.

As hopefully, everyone is aware that Company is a fully integrated self-administered and self-managed real estate investment trust, focused on the acquisition and develop for single-tenant properties net leased to industry leading retailers throughout the country in the United States.

During this call, we will make certain statements that may be considered forward-looking under federal securities laws. The Company’s actual results may differ significantly from the matters discussed in any forward-looking statements.

Let’s get started with our Real Estate operations. We had a very busy and highlight successful fourth quarter. On the acquisition front, we acquired 11 properties during the quarter for aggregate purchase price of approximately $32 million at a Cap rate exceeding 8%. These properties are leased to eight tenants located in seven states, and are in six different retail sectors.

The single tenant properties acquired during the fourth quarter are net leased to Mattress Firm in Morrow, Georgia; Harris Teeter in Charlotte, North Carolina; a Dollar General Market in Lyons, Georgia; Big Lots in Fuquay-Varina, North Carolina; AutoZone in Minneapolis, Minnesota; LA Fitness in Lake Zurich, Illinois; and Advance Auto Parts in Lebanon, Virginia; and a portfolio of four Applebee’s located in Harlingen, Texas; Wichita Falls, Texas; and two in Pensacola, Florida.

For the full year, our acquisition activity totaling just North of $81 million. 2012 was a record year for the Company doubling any previous years a little acquisition activity. A general information on these acquisitions, in 2012, we acquired 25 properties. These properties are leased to 18 different retailers located in 15 states. These acquisitions represents 14 e-commerce for existing retail sectors. we are pleased that the diversification that we’ve been able to achieve.

During the fourth quarter, our development activity remains robust. We currently have five projects underway, including our most recent announcement of the redevelopment of an 18,000 square foot building in historic district of downtown in our directly across from the outside onto the central campus of the University of Michigan. This exciting project is pre-leased to digest Walgreens is under a 20-year agreement. It will be Walgreens’ first new campus flagship store in the country.

Additionally, construction continues on our Walgreens and Rancho Cordova, California, as well as the three previously announced projects that are currently underway for Wawa. These three projects are located in Kissimmee, Florida, Pinellas Park and Casselberry, Florida. All three transactions with Wawa are 20-year corporate ground leases with options to extend at the Tenants’ election.

As most of you are aware, Wawa is an industry-leading gas and convenience store operator, based in the Mid-Atlantic. They’re a Fortune 50 private company with over 560 stores and Carrier BBB Fit Rating. We are extremely pleased to be a development partner and participate in Wawa’s growth.

During 2012, we completed developments from McDonald’s in Southfield, Michigan and JP Morgan Chase in Venice, Florida. We also completed the expansion from Super One Foods at Ironwood Commons in Ironwood, Michigan. This brings our total anticipated investment in announcing completed development to approximately $21 million for 2012. We also sold six non-core assets during 2012. The disposition has included three vacant properties formally leased at Borders and three shopping center properties. Proceeds from these sales amounted to approximately $16.1 million.

Subsequent to year-end, we announced the sale of Walgreens in Ypsilanti, Michigan for approximately $5.6 million. We achieved a low 6% cap rate on the sale. This shows the substantial demand for high-quality single-tenant, net-leased assets.

Moving on to our current portfolio metrics. Our occupancy at 12/31/12 was approximately 98%. As of December 31, 2012, our portfolio consisted of 109 properties, expanded in 27 states and contained an aggregate of approximately 3.3 million square feet of gross leasable area. Our portfolios comprise of 100 single net – single-tenant lease properties as well as nine community shopping centers. The company has developed 56 of these properties, including 47 of the 100 single-tenant properties in all nine of the centers. As of December 31, 2012, approximately 97% of our annualized base rent was from national and regional tenants. Approximately 61% of our rental income is derived from retailers that are investing great.

Portfolio wise, the weighted-average base term remaining is 12 years. This increases to 14 years, specifically for our single-tenant net lease properties.

At this point, I’d like to turn the call over to Alan Maximiuk, our Chief Financial Officer, who will provide a financial update. Alan?

Alan Maximiuk

Thank you, Joey. Good morning, everyone. I would like to provide a few highlights of the results for the quarter. Please note that we will be discussing non-GAAP financial measures, including funds from operations and adjusted funds from operations reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the company’s earnings press release issued yesterday.

This release is available on our website at www.agreerealty.com. The company is pleased to announce that the revenues for the fourth quarter 2012, increased 24% year-over-year from $7.7 million to $9.6 million. This strong increase in revenues is due to the success of the acquisition and development programs for maintaining high occupancy levels. The company’s revenues for the 12 months of 2012 increased 14% year-over-year from $31.4 million to $35.8 million.

Funds from operations or FFO for the quarter increased by over 27% to $681,000 from FFO as adjusted of $400,786 for the fourth quarter 2011. This equates to $0.52 per share compared with FFO as adjusted of $0.48 per share a year ago. The increase in FFO per share was primarily due to positive acquisition and development results offset by the impact of the increase in the weighted average shares outstanding as a result of the common share offering in January 2012.

Adjusted funds from operations or AFFO for the fourth quarter 2012 was $0.52 per share compared with AFFO as adjusted of $0.48 per share for fourth quarter 2011. For the year, funds from operations were $23,363,000 compared with FFO as adjusted of $2,215,000 for the year prior that equates to $2.03 per share for the year 2012 compared with FFO as adjusted of $2.20 per share for the prior year.

FFO per share for the year were impacted by the increase in the weighted average shares outstanding as a result of the common share offered in January 2012, the timing of investment activity and disposition of various non-core properties and the impact of the Borders’ bankruptcy in February 2011. Adjusted funds from operations for the year 2012 were $2.08 per share compared with AFFO as adjusted from $2.24 per share for the prior year.

In the fourth quarter, the company paid its 75th consecutive cash dividend. The dividend for the fourth quarter combined is at $0.40 per share and the remain is well covered. Both the current FFO payout ratio and the AFFO payout ratio are approximately 78%.

Moving to the balance sheet, we closed on several financings during the fourth quarter. In December 2012, we closed on $25 million secured financing with PNC Bank. There is a panel secured by 11 single tenant properties. The interest rate has been swapped to a fixed rate of 2.49% that will mature in April 2018. We also closed $3.6 million secured CMBS financing with Morgan Stanley. The 10-year non-recourse loan is secured by 12 single tenant properties. This loan bears interest at a fixed rate of 3.6% and matures in January 2023. Both of these new loans are interest-only. Perhaps we amended our $85 million unsecured revolving credit facility. The amendment extended the maturity to October 2013 and provides two one-year options at the Company’s discretion to extend to October 2017 subject to customer conditions. The annual interest rates on the borrowings have been reduced to LIBOR plus 150 to 215 basis points depending on the Company’s leverage.

The Company currently operates at LIBOR plus 150 basis points first. The facility includes a $50 million accordion feature to increase capacity to $135 million subject to certain conditions to accommodate our business plans.

In January 2013, the Company completed an underwritten public offering of a total of 1,725,000 shares of common stock, including the full exercise of the underwriter’s over-allotment option, the offering resulted in net proceeds to the Company of approximately $44 million.

The Company’s balance sheet continues to be at a very strong position. At quarter end, the Company’s debt-to-enterprise value was approximately 34%. The Company’s debt-to-enterprise value decreased to approximately 24% after taking in account the proceeds from the recent stock offering being used to paydown amounts outstanding over the credit facility. Portfolio currently has 57 funding temporary assets and the Company’s interest coverage is healthy at 4.2 times and our debt-to-EBITDA ratio is at 5.6 times.

Approximately $25 million or 21% of our total mortgage after amortizing non-recourse loans that are tied to 13 moving assets we pay it off from 2017 to 2026. Goodwill amortization for the fourth quarter was $836,000 and approximately $3,165,000 for the full year. Principal of amortizing was $3.5 million to $3.6 million for year over the next few years.

In total, approximately $30 million of amortizing debt will be paid down between 2013 and 2026. In 2013 and 2017, the Company’s debt maturity was $80 million maturing in that timeframe. That concludes the highlights of the Company’s financial and operating results for the fourth quarter in the year of 2012.

I’d like to turn the call back to Joey Agree.

Joey Agree

Thank you very much Alan. We are pleased with the substantial progress we achieved over the past few years. We’ve acquired $157 million of high quality net lease assets our development pipeline and relationships with Investment Great Tenants reduced our Kmart exposure by nearly 30%, and made significant progress on our goal of achieving additional diversification of our portfolio by tenant, by sector and geography. We’ve reduced our cost of capital, enhanced our liquidity profile and kept our balance sheet in fantastic shape.

At this time, I’d like to open it up for any questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question is from Richard Milligan with Raymond James. Go ahead.

Richard Milligan – Raymond James

Hey, good morning, guys.

Joey Agree

Good morning, RJ.

Alan Maximiuk

Good morning.

Richard Milligan – Raymond James

Joey, question for you on the acquisitions. This year, obviously you ramped up a quite a bit in terms of dollar volume. Curious what your expectations are for 2013, maybe where’s the flow right now, has it increased or decreased and where you’re seeing cap rates?

Joey Agree

Yeah. Obviously, in 2012, we were able to achieve significant volume and contacts of our portfolio and the size of the company. We haven’t put out any guidance for 2013 in terms of acquisition volume. What I can tell you is year-to-date, we’ve closed almost $15 million similar credits, similar terms, similar cap rates that we were acquiring in 2012.

We’re seeing good volume. I think everyone is aware yield continued to compress or remain at a historically low level. I think for the remainder of the year, we’re focused on sourcing opportunities that fit within the context of our portfolio, but also value-add opportunities, where we think we can substantially beat market cap rates. So I’m hesitant to give guidance, I think, for the first couple of months here, as I said, we’ve acquired almost $15 million in net leased assets. And going forward, our goal is to continue to scale our pipeline as well as our holding.

Richard Milligan – Raymond James

And then in the context of the Walgreens that you disposed of, is there – are you looking to do any more dispositions. I know obviously Kmart is on the radar, but you’re not looking to rush anything out the door because you took care of, like I said, the three properties that you wanted to in 2012. But may be more on the, the Walgreens or some of the other sort of higher credit quality can’t answer. Are there any thoughts about dispositions for this year.

Joey Agree

Yeah. That’s a great question. The Walgreen’s that we disposed in January in neutral, really was an opportunistic disposition for – that was in the low six Cap rate range and we felt that the underlying real estate as well as market to market rent combined with the store sales at that location, really made it an opportunity for us to recycle at capital into higher quality after it was stronger residuals. I think these – where we see Cap rate today and based upon our pipeline, we’ll consistently be looking at the net lease portfolio on an opportunistic basis to recycle capital in accretive manner.

Richard Milligan – Raymond James

Okay. And then my last question is, obviously you’ve ramped up your relationship with Wawa in terms of development. I’m curious as to what you think for 2013. Is it going to be working with the retailers that you currently have relationships with or do you envision developing new development relationships.

Joey Agree

All right. We are in the midst of Wawa’s growth in four, as you we have three stores currently under construction. I think on going forward basis, what we should be able to achieve that with Wawa working system we’re working with retailers in our portfolio, the McDonald, the Walgreens, the JPMorgan chase – chases of the world to expand those relationships. So simultaneously we are focused on, not only deepening existing relationships, but really broadening relationships with new talent, potentially in new geographic areas throughout the country. So we’re highly focused on explaining both the depth. But importantly also the breadth of the relationship, all in sectors within that are industry-leading that everybody is familiar with.

Hi, good morning, Joey. Given all of the large net lease portfolios that have traded hands, was wondering if you could comment on Cap rates for our portfolios versus the smaller assets that you buy, there been any changes in the market due to the large portfolios that have been out there.

Joey Agree

That’s the great question, Paul. I think the three larger portfolio transactions that we’ve seen in our space, I think our wonder they are emblematic, what’s going on overall of the phase. I think it’s fair to say that there is a premium of small premium on those portfolios. But it is same time most of those transactions also have currently in the form of stock involved in the consideration component, and that’s obviously a factor in those transactions. We continue to see cap rate compression on the one-off, I think one-off transactions, I think our overall disposition is a good example of growth and approximately 20 years of base term remaining obviously Walgreens corporate credit, demographics and the retail synergy of application where weaken variable to achieve a low six cap.

We continue to see McDonald’s ground lease is come out in the four cap range, JPMorgan ground lease is coming out in the five cap range, Walgreens trading in the low-sixes. So these are pre-recession type cap rates that we’re seeing by a really yield driven environment as everyone is aware, but I think it’s fair to say there is a small premium on the larger transaction, that we’ve seen those portfolio transactions, but it is also an indicative of what we are seeing on a one-off basis and it just a voracious appetite for yield, high credit quality with strong underlying residual.

Paul Adornato – BMO Capital Markets

Okay looking at the portfolio over the last couple of years, you’ve made great progress getting rid of some of the trouble tenants, was wondering if you could talk about diversification. Now that you have a nice roster of high quality tenants for instance, how much Walgreens would be considered too much for you?

Joey Agree

Right. I think our portfolio today stands a 112 assets, 30 states, 17 sectors that we believe could be e-commerce growth mobile and static resistant. I think our portfolio, it will continue to scale, it will continue to diversify obviously but the Walgreens concentration that we have is a function of our 15 year preferred development relationship with Walgreens, although one stores of 29 stores that are currently opening in debt and paying rent, we’ve developed and we achieve returns that are obviously significantly better than market cap rates.

So I think our Walgreens concentration is a function of two things, it’s a function of one of our continuing to scale our portfolio and grow our rental revenue base, and then we’ll obviously work as we did in January, had to divested assets that we believe to be non-core, we’re not comfortable with the residual values. So I think, we have obviously two Walgreens coming on online in the near or intermediate future here with which is currently about to get wrapped up here during the second quarter as well as and so, I wouldn’t be surprised if we were able to digest Walgreens better one-off, so can be recycle those proceeds.

Paul Adornato – BMO Capital Markets

Okay. Great, thank you.

Operator

Our next question is from Wilkes Graham with Compass Point. Go ahead please.

Wilkes Graham – Compass Point

Hey, good morning guys.

Joey Agree

Hi Wilkes. How are you?

Wilkes Graham – Compass Point

Good. A couple questions – to follow-up maybe on a couple RJ’s questions on – yeah, external growth in 2013. Do you – can you currently give any sort of sense of how you think the mix between acquisitions and developments might come out this year?

Alan Maximiuk

Well. I think it’s extremely difficult to predict. Our acquisition committee meets twice a week, reviewed potential opportunities and we are talking every day, all day about potential opportunities in addition to those two formal meeting. So, it’s very difficult to predict what our acquisition volume is going to be for the year. That said, I think to make sure that you saw between development and acquisitions in 2012, which is approximately 18%, 20%, is probably in the ballpark. Obviously, that number can get distorted by opportunities on the acquisition side. Work can get distorted by additional development commencement. But, we have a pretty good handle on the development pipeline for 2013.

So, the biggest variable there is our acquisition volume, which I don’t have a crystal ball to tell you what that volume will be in 2013. All I can tell you is that, we are diligently sourcing and leveraging and utilizing all of our relationships that has – have grown exponentially over the course of almost three years now since the launch of our program. And, we’re seeing good opportunities and we’re creating significant value for our shareholders.

Wilkes Graham – Compass Point

Can you say about maybe, how the acquisition pipeline or how the market looks now compared to the beginning of last year?

Alan Maximiuk

Yeah. I think generally speaking, we’ve seen incremental Cap rate compression since the beginning of last year. I think to Paul’s question, the portfolio transaction have – has net lease space. That’s got additional attention in net lease space. I think we’re seeing acquired individuals enter the market from an acquisition perspective.

There is more financing readily more debt capital readily available today than a year ago for those individuals. We still feel our supply constrained market, which is a function of the lack of development activity that’s taken place and during, since the recession. But we’re seeing with product that are looking to take advantage of expected cap rate.

At the same time, we’re working with retailers really throughout the country. Working hand-in-hand really with, as they look at their existing portfolios, short-term leases, medium-term leases and potentially looking at creative solutions to the existing portfolio than we serve. So if you – generally speaking, the net lease base has gotten significant attention. Obviously, investors are yield-hungry, we don’t anticipate that going away anytime soon. And there’s a lot of capital that continues to flow into the space. So we don’t envision in loosening up. I think most importantly, we can control our response, our proactivity, our persistency, and we can roll up our sleeves and continue to look for ways to leverage our relationships and seek out opportunities.

Wilkes Graham – Compass Point

Okay, thanks. Al, just one question for you. If I’m doing my math right, I think the weighted-average acquisition date for the assets in the fourth quarter was around December 17 or so. So there is very little income, I think, in the fourth quarter that came from that $32 million of acquisitions. Can you say how much of the $9.1 million of rental income came from the acquisitions?

Alan Maximiuk

I can’t say that I have a good handle on that. But if you – if you look at the press release that we give, the lease for rent number at the end of the quarter, which is $38 million, that’s really our in-place rents at the end of the year. So that would be a run rate going forward.

Wilkes Graham – Compass Point

Okay. Okay, that’s helpful. Thanks.

Joey Agree

Thanks.

Operator

(Operator Instructions) There are no further questions in our queue. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Joey Agree for any closing remarks.

Joey Agree

Great. Thanks for joining us. Again, I’d like to thank everyone and we look forward to speaking to you next quarter.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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